If you are a regular reader of “Fraud of the Day,” you know that identity theft and tax refund fraud often go hand-in-hand. It’s pretty straightforward: identity thieves steal law-abiding taxpayers’ Social Security numbers and use them to file phony tax returns. And it’s a big problem. Now, according to an article from The Wall Street Journal, at least one tax fraud scam involving identity theft of Puerto Rican citizens’ Social Security numbers has reached the billion dollar mark.
The article describes a tax refund fraud scam “masterminded by a group in the Dominican Republic” that “has been around at least five years” in which the fraudsters use the stolen Social Security numbers of Puerto Rican citizens to file fake tax returns eligible for refunds. “The alleged scammers use the stolen Social Security numbers to file fake documents from companies purporting to withhold tax, then fake returns that are structured to ensure the filer is owed a refund.” (I need to use this group for my taxes!) Then, the checks are mailed to the fraudsters. Since the addressees often don’t live at the stated address, some mail carriers have been enlisted into the scheme. The U.S. Postal Service pointed out that these instances are “rare” and that carriers are often on the front lines helping to “catch instances of fraud by notifying authorities after seeing a large number of refund checks” go to the same address or neighborhood.
How pervasive is the problem? “Between October 2010 and June 2011, the IRS received phony tax returns based on stolen Puerto Rican identities that would have led to the disbursement of $5.6 billion to alleged fraudsters.” Why target Puerto Rican citizens? The article notes that Puerto Ricans don’t pay federal income tax, so they “are less likely to be on the IRS radar.”
The article in today’s fraud quotes an assistant U.S. Attorney in Manhattan who described the scam as a “scheme” that “has metastasized and spread” from New York and Boston to locations in “Massachusetts, Pennsylvania, North Carolina, Connecticut, Rhode Island, New Jersey and California.” (It’s like a bad cold; everyone is getting it.) Can it be stopped? Of course. The fraudsters have adapted to a new world, and so can the government – by leveraging public records and data analytics technology to find red flags for fraud.